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Taking Control Of Financing

Dec 27, 2022
Dealers, F&I, Training

by Ian Vandenbark
Trainer & Account Executive

One of the most important challenges facing dealerships today is how to maintain control of vehicle financing. This customer commitment gives the store more direct control over the speed in which deals get funded, allows them to continue building their portfolio with lenders, and ultimately makes F&I products more affordable for the customer. But with inflation on the rise, the Federal Reserve is on the move, combating this economic momentum and leaving the customers even more focused on interest rates.  

Customers often have a misleading perspective of interest savings due to their experience with mortgage loans. They learn that if they can save half a percent, or even a quarter of a percent, it is worth going through the drawn-out process to refinance their mortgage and paying all the costs that go along with it. Under those circumstances, it makes sense. Mortgage loans involve financing hundreds of thousands of dollars on decades-long loan terms. Conversely, auto loan amounts are typically only tens of thousands of dollars for loan terms of only 60-84 months, meaning the quarter or half a percent does not translate to the same savings.

It is in the dealership’s best interest to be proactive in addressing the customer’s understanding of auto loans and savings, and to clarify the benefits of financing through the dealership. The intended method of funding must be addressed right after an agreement to move forward with the sale. Whether the vehicle is an in-stock unit or an ordered unit six months out from delivery, the F&I manager should initiate a dialogue with the customer immediately. Begin by verifying the buyer and vehicle information, along with their intended method of payment. The usual responses are few: “I’m just writing a check,” “I already have financing” or “I’m not sure – what are my options?” Clearly, the latter accomplishes the F&I manager’s goal. The other two will take a bit of work, so let’s break those down.

“I’m Just Writing a Check.”

The most important thing to understand here is why the customer wants to go this route. Is it because they want to avoid paying interest, don’t want the responsibility of making payments or just feel it’s more convenient? We must understand the underlying reason in order to effectively address it. Something many customers fail to consider is the risk of paying cash. If their newly purchased vehicle ends up being a total loss through no fault of their own, it is unlikely the insurance company will reimburse them in full. The solution, naturally, would be to finance the vehicle with GAP protection, eliminating this problem altogether or preventing the customer from digging into their savings to settle a loan payoff for a totaled vehicle. 

“I Already Have Financing Arranged.”

The nice thing in this situation is the customer already sees the value in borrowing money to fund their purchase. The only question is who they borrow money from. There are a few different reasons they might want to choose outside financing. Perhaps it’s a lack of trust with the dealership (loyalty to their lender), they believe they will get a better deal elsewhere or simply convenience. Regarding consumer trust, remember their trust was high enough to purchase from the store, and that lays a good foundation for dialogue. Most hesitations, however, come from their perspective of where to find the best loan or rate.

Customers often don’t think about how they can benefit from the volume of business dealerships do with banks. Most dealerships do millions of dollars in automotive lending each month, along with floor planning their inventory, real estate and other business loans. This unique relationship can be used as leverage for the dealership to offer loan arrangements that are potentially more attractive than customers can arrange themselves. Another little-known fact is that a contract signed directly with a bank (loan agreement) often forces consumers to give up rights they don’t need to in order to finance a vehicle, providing a substantial benefit for a customer to finance through a dealership source (retail installment sales contract).

Both situations involve delicate conversations that must be navigated strategically and with caution. It would not be worth the sacrifice of winning the financing but losing credibility in the process. Keep in mind that the goal is simply to open the door to a conversation about alternative funding options. This is a conversation that will take practice in order to be authentic and effective, and must be rehearsed prior to game time.

*This article originally appeared in AutoSuccess on December 26, 2022.